Shares of the luxury department store chain Nordstrom, Inc. (NYSE: JWN) soared 15.26% or $4.21 to close at $30.75 after the company posted mixed quarterly results that showed a decline in sales, but blew away Wall Street earnings forecasts. The company also downwardly revised its net sales outlook for fiscal 2019. Furthermore, Nordstrom also slashed the upper band of the FY 2019 earning per share estimates. The company’s stock dropped 57% in 2018.
The Seattle, Washington-based company posted second-quarter sales of $3.87 billion, down 5.1% from the comparable quarter last year, missing analysts’ estimates of $3.93 billion. Weak anniversary sale and off-price business negatively impacted quarterly sales.
For the recent quarter, net income declined to $141 million, or $0.90 per share, from $162 million, or $0.95 per share, in the prior-year period. Analysts had estimated earnings per share of $0.75.
Erik Nordstrom, co-president of Nordstrom, was upbeat about the strong earnings posted by the company. Nordstrom said, “We delivered strong bottom-line results, demonstrating our inventory and expense discipline. We exited the quarter in a favorable inventory position and made important strides in productivity.”
Nordstrom stated that its digital sales, representing 30% of the overall revenue, increased 7%. In the year-ago period, digital sales represented 28% of the overall revenue generated by the company. Furthermore, full-price net sales decreased 6.5% to $2.53 billion, while off-price net sales dropped 1.9% to $1.24 billion.
Likewise, full-price department stores posted a 6.5% y-o-y decline in sales for the quarter ended August 3rd, 2019. Last year, the company reported a 5% y-o-y drop in sales at full-price department stores. Off-price Nordstrom Rack stores reported a 1.9% fall in net sales, compared with the 7% increase in the corresponding-quarter last year.
Compared with the similar period last year, gross profit fell 50 basis points to 34.5%, primarily due to deleverage on expenditures related to occupancy. Inventory dropped 6.5% on a y-o-y basis.
During Q2 2019, Nordstrom opened just one new store. At the end of the second quarter, the company had 381 stores in operation.
Going forward, Nordstrom cut its net sales outlook for fiscal 2019 and earnings forecast. The company anticipates net sales to remain flat to 2% down. Likewise, Nordstrom expects FY19 earnings to be in the range of $3.25 to $3.50 per share, compared with an earlier outlook of between $3.25 and $3.65 per share.
The company has pointed out that it has not included the tariffs levied on Chinese goods in its forecast but trusts that to have little impact on its bottom line.
On October 24th, the company intends to open its first department store for women in New York City, which will be the largest single venture investment ever made by the company. A men’s store was opened in April of 2018, and the also earlier operated a small number of off-price Nordstrom Rack stores in New York. The company expects sales from the stores to materialize in the final quarter of 2019.
Despite these efforts, fundamentally, investors should be cautious while taking a long position in the stock. In the US, annual sales at departmental stores have declined 20% in 2018, compared to the previous year. The worrisome fact is that the trend is expected to continue this year as well, according to the US Census Bureau.
Therefore, it would be wise to use the rally to exit from the stock than making fresh investments.
Technically, the stock has found support at 25. The next major resistance is anticipated near 33 levels. The stochastic indicator reflects an extremely oversold scenario. As a result, we can expect the stock to move up further.
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